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Bubbles, experience and success

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  • Shestakova, Natalia
  • Powell, Owen
  • Gladyrev, Dmitry

Abstract

One of the most robust findings in the experimental asset market literature is the experience effect: markets are efficient, that is, they generate prices close to fundamentals, as long as at least some traders are familiar with the environment. In this paper we show that market efficiency of mixed-experience markets is sensitive to the previous success of experienced traders. This sensitivity results from differences in trading behavior that prevail across experimental rounds. On the other hand, we find no evidence for the experience effect: our markets with experienced and inexperienced traders are not different from each other, even though our design and procedures closely follow those from the literature.

Suggested Citation

  • Shestakova, Natalia & Powell, Owen & Gladyrev, Dmitry, 2019. "Bubbles, experience and success," Journal of Behavioral and Experimental Finance, Elsevier, vol. 22(C), pages 206-213.
    • Handle: RePEc:eee:beexfi:v:22:y:2019:i:c:p:206-213
    DOI: 10.1016/j.jbef.2019.02.011
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    Cited by:

    1. Anita Kopányi-Peuker & Matthias Weber & Lauren Cohen, 2021. "Experience Does Not Eliminate Bubbles: Experimental Evidence," The Review of Financial Studies, Society for Financial Studies, vol. 34(9), pages 4450-4485.
    2. Miklánek, Tomáš & Zajíček, Miroslav, 2020. "Personal traits and trading in an experimental asset market," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 86(C).
    3. Nicolas Eber & Patrick Roger & Tristan Roger, 2024. "Finance and intelligence: An overview of the literature," Journal of Economic Surveys, Wiley Blackwell, vol. 38(2), pages 503-554, April.
    4. Bulutay, Muhammed & Cornand, Camille & Zylbersztejn, Adam, 2022. "Learning to deal with repeated shocks under strategic complementarity: An experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 200(C), pages 1318-1343.
    5. Ciril Bosch-Rosa & Brice Corgnet, 2022. "Cognitive finance," Chapters, in: Sascha Füllbrunn & Ernan Haruvy (ed.), Handbook of Experimental Finance, chapter 7, pages 73-88, Edward Elgar Publishing.

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    More about this item

    Keywords

    Asset markets; Bubbles; Experience; Experiment;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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